Hyderabad: Ministry of Civil Aviation (MoCA) on Thursday confirmed that Telangana government has agreed to reduce value-added tax (VAT) on Air Turbine Fuel (ATF), which alone accounts for over 50 per cent of operating costs of airlines. VAT on ATF in Telangana is at 14 per cent to 15 per cent.

However, the percentage of reduction is yet to be worked out by the state government. A senior official at MoCA further said Telangana government was keen on working with the Centre on enhancing regional air connectivity in the State.

Speaking at the inaugural session at ‘Wings India-2018’ here on Thursday, RN Choubey, Civil Aviation Secretary, said: “Telangana government has agreed to reduce VAT on ATF, but to what extent the VAT reduction will be, is not yet decided. Telangana government has also keen on adding tier-2 and 3 cities under regional air connectivity programme. We want ATF to be included in GST. If ATF continues to be out of GST, then we request all the states to slash VAT on aviation turbine fuel.”

Choubey has invited Telangana and other states to underwrite some of seats to boost regional air connectivity. Earlier, in his speech, Telangana Industry Ministry KT Rama Rao positively responded to the request made by Civil Aviation Ministry on VAT reduction. He said: “Telangana government would positively recommend on VAT reduction on ATF.”

KTR further adds: “The state government’s top priority is to bring air connectivity to small towns. As part of this, Greenfield airport at Kothagudem will come up soon. The government will be adding fourth aerospace park at Eliminedu near Ibrahimpatnam. Air cargo plays a vital role in land-locked Telangana state, which handles 18mn passengers and 2,500 MT cargo annually.”

On the occasion, KTR unveiled electronic cargo platform ‘e-Go’ and e-booking portal ‘RIGEL’. A whitepaper on ‘Opportunities and Financing Outlook for Aviation sector,’ carried out by YES Bank (Corporate Finance and Infra Banking), was also released at the event.

Later in a press briefing, Choubey has confirmed the Telangana government’s decision to reduce VAT on ATF. VAT on ATF is amounting to Rs4,000 cr annually and it’s over 50 per cent of total operating cost of domestic carriers and this is 70 per cent higher than the global average.

Rising oil prices globally are impacting the performance of airlines. “Domestic aviation grew over 20 per cent during the past three years and it’s expected to be 17.5 per cent for FY18. As long as oil prices remain below $80 per barrel, the domestic aviation will grow at a compound annual growth rate (CAGR) of 15 per cent over the next 20 years,” said Choubey. Usha Padhee, joint secretary, MoCA, BS Bhullar, Director General of DGCA, Dilip Chenoy, DG at Ficci, were present on the occasion.

Ashok Gajapati Raju, who put in papers as Civil Aviation Minister Wednesday late night, was supposed to be chief guest, but didn’t attend the event owing to the latest political development.